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Credit Availability and Asset Pricing Dynamics in Illiquid Markets: Evidence from Commercial Real Estate Markets

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  • DAVID C. LING
  • ANDY NARANJO
  • BENJAMIN SCHEICK

Abstract

This article examines credit frictions and asset pricing in public and private markets with varying liquidity. We find that a tightening in credit availability is negatively related to subsequent price movements in private and public commercial real estate markets. Assets trading in illiquid segments of these markets are also susceptible to a feedback effect whereby changes in asset prices predict subsequent changes in credit availability. Controlling for investor demand, our findings suggest credit constraints play an economically significant asset pricing role in markets that are both highly levered and relatively illiquid.

Suggested Citation

  • David C. Ling & Andy Naranjo & Benjamin Scheick, 2016. "Credit Availability and Asset Pricing Dynamics in Illiquid Markets: Evidence from Commercial Real Estate Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(7), pages 1321-1362, October.
    • Handle: RePEc:wly:jmoncb:v:48:y:2016:i:7:p:1321-1362
    DOI: 10.1111/jmcb.12335
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    Cited by:

    1. Duca, John V. & Ling, David C., 2020. "The other (commercial) real estate boom and bust: The effects of risk premia and regulatory capital arbitrage," Journal of Banking & Finance, Elsevier, vol. 112(C).

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